Legal Issues Raised with AWHO

Chandra Nath 24. August 2013

from: CPC nath@computer.org parameters of aiding and abetting liability are laid out in the Restatement (Seto: cond) of Torts using a three-prong test: md@awhosena.in, (1) the aided party must commit tordymd@awhosena.in, AWHO HQ awhosena@gmail.com , tious conduct; (2) the aider must know awhosena.inawhosena@awhosena.in, that the aided partys conduct constitu tes a breach of duty; and (3) the aider awho@awhosena.in, must give substantial assistance or enawho@vsnl.com couragement to the aided party. Advice date: Sat, Aug 24, 2013 at 12:11 PM or encouragement to act operates as a subject: REAL ESTATE (REGUmoral support to a tortfeasor and if the LATION DEVELOPMENT) BILL act encouraged is known to be tortious Dear Mr Managing Director, it has the same eect upon the liability I am still awaiting your response to of the adviser as participation or physimy two mails on the subject. cal assistance. However, assistance can So far we looked at how the Chair- be so slight so as to avoid liability; the man and BoM usurped the Society and factors to consider in determining liaascended to the throne of Chairman bility are: (1) the nature of the act enand Board of Management of AWHO couraged; (2) the amount of assistance and also failed in their duciary duty given by the defendant; (3) the presence to the members of the Society (coun- or absence of the defendant at the time ting to as many as 40000 veteran) suf- of the tort; (4) the defendants relatifered loss of fundamental rights - the on to the other; and (5) the defendants right to equal protection of laws not state of mind. to talk of being victims of Criminal APPLICATION OF AIDING AND Breach of trust. In this we will examine ABETTING LIABILITY STANDARD the criminal liability of the legal counTO BREACHES OF FIDUCIARY sel of AWHO Attorneys face a variety DUTY of ethical challenges. While doing the right thing may not always be easy, it A duciary relationship is one in should always be clear. Rules of profes- which one person [called a duciary] sional conduct demarcate the line bet- is under a duty to act for the beween right and wrong in some instan- net of another [called a beneciary] ces. Other areas, however, are left to on matters within the scope of the common law (and judicial interpretati- relationship. Common examples of on) to develop. This note deals with one duciary relationships include guardiansuch area: whether (and, if so, under ward, agent-principal, and attorneywhat circumstances) an attorney may client.The duciarys obligation to act be held liable for aiding and abetting for the benet of another is known as a a clients breach of duciary duty and duciary duty, and breach of that duhence criminal Breach of Trust.. ty causes the duciary to be liable to AIDING AND ABETTING STAN- the beneciary. Combining aiding and DARD abetting liability with this breach of The common law of torts imposes duciary duty liability creates a straightliability for aiding and abetting another forward result: one who knowingly proin commission of a wrongful act. The vides substantial assistance or encou1 ragement to another in breaching a duciary duty is liable for aiding and abetting the breach of duciary duty. As explored above, providing advice or encouragement satises the substantial assistance prong. Therefore, it follows that an attorney who counsels his or her client to breach a duciary duty should be liable for aiding and abetting that breach of duciary duty. Aiding in a breach of duciary duty may also be aiding in the commission of a crime. For example, an attorney may advise a trustee on how to siphon funds from a beneciary. In this case, since the breach of duciary duty is a Criminal Breach of Trust by a public servant ( Section 409 in The Indian Penal Code, 1860 and punishable with imprisonment of either description for a term which may extend to ten years, and shall also be liable to ne), the act of the lawyer is a clear case of aiding and abetting a crime. LIABILITY FOR AN ATTORNEY If an attorney advised that agent or that partner as to how to breach their duciary duty with greater stealth or success, that attorney would have aided and abetted in a breach of duciary duty. This begs the question of whether the attorney, who owes a duciary duty to his or her own clients, should be liable to their clients beneciary. Reynolds sued Schrock and Markely for breach of duciary duty for aiding and abetting a breach of duciary duty. The lawsuit against Schrock was settled, leaving Markley as the sole defendant. The court held that summary judgment in the attorneys favor was proper, recognizing an exception for attorneys from liability for aiding and abetting a clients breach of duciary duty. However, the exception crea-

ted for attorneys is not unlimited: For a third party to hold an attorney liable for aiding and abetting a client in breach of a duciary duty, the burden is on the third party to prove that the lawyer acted outside the scope of the lawyer-client relationship. This exception extends liability to attorney conduct that is unrelated to the representation of a client (even if the person is a client), in the attorneys own selfinterest, or within the crime or fraud exception to the attorney-client privilege. While the court in Granewich ( http://caselaw.ndlaw.com/or-courtof-appeals/1437855.html) did accept as true the allegations in the complaint pleading that the attorneys acted outside the scope of their legitimate employment, the court did not state that this fact was determinative to its decision, declaring instead that the defendants status as lawyers is irrelevant. FIRST, DO NO HARM; SECOND, PREVENT HARM? This leads us to the question whether attorneys have an armative duty to prevent their clients from causing harm in the form of a breach of duciary duty. The argument over whether an attorney must, must not, or may disclose to a clients beneciary that the client is acting inappropriately with regard to the duciary relationship presupposes the basic notion that the attorney should not contribute to the clients malfeasance. Professor Hazard advocates that where an attorneys client is a duciary of a third party, that third party assumes derivative client status and the actual client is the primary client. Under this model, the attorney effectively has two clients: the primary client (the actual client who hired the attorney) and the derivative client (the beneciary of the primary clients duciary duty). Since the primary client (as a duciary) is obligated to work in the interest of the derivative client (as a beneciary), the attorney is as well. Three consequences of this primary-derivative client model follow: (1) the lawyers obligation to avoid participation in his or her clients fraud is engaged by a more sensitive trigger than usual; (2) the lawyer must ensure that the duciary-

primary client volunteers complete and truthful information to the third partyderivative client; and (3) the lawyer has a duty to disobey instructions that would wrongfully harm the third partyderivative client (because a client is not permitted to use an attorney to harm the clients beneciary). While the appellate court armed the trial courts dismissal, it is apparent that the decision was inuenced by the monumental stupidity of the plaintis legal theory! CIVIL CONSPIRACY Civil conspiracy is a separate cause of action that requires, interalia, an underlying tort and a meeting of the minds among the coconspirator on the object or course of action to be taken. By contrast, a cause of action requires only the knowing participation of a party in a breach of a duciary duty and does not require a conspiratorial agreement.SSecond, the breach of duciary duties or scheme of oppression must involve misrepresentations, failure to disclose, or deceptive conduct so that breach of duciary duties constitutes fraudulent conduct. Third, the plainti must plead and prove that the attorney had knowledge of the object and purpose of the conspiracy; that there was an understanding or agreement to inict a wrong against, or injury on, the third party; that there was a meeting of minds on the object or cause of action; and that there was some mutual mental action coupled with an intent to commit the act that resulted in the injury. Finally, the plainti must plead and prove that the attorneys conduct went beyond mere fulllment of his professional duties to the majority shareholder. In the present context of the AWHO counsel, all the above are satised. Certainly, personal benet from the proceeds of the fraud would certainly satisfy this burden. Here in the present context, AWHO counsel beneted from the appointment as legal counsel of AWHO over a prolonged period. The plainti could also plead and prove conduct by the attorney necessary to the accomplishment of the fraudulent scheme, such as meaningless work 2

designed to convey a false impression. The illegitimate and illegal Rules of AWHO and AWHOs insistence on compliance of the members of AWHO to these Rules are sucient to prove this. The welfarefacade of AWHO that it is engaged in some noble welfare activity for the veteran is another fraudulent scheme. The attorney will argue that everything done in devising and implementing a scheme to oppress the members of AWHO over a period of 3 decades is merely the rendering of legal services; however the plainti should counter that these particular services are foreign to the duties of an attorney.Poole v. Houston T.C. Ry, 58 Tex. 134, 137 (1882). THIRD PARTY DERIVATIVE CLIENT Professor Hazard advocates that where an attorneys client is a duciary of a third party, that third party assumes derivative client status and the actual client is the primary client. Under this model, the attorney eectively has two clients: the primary client (the actual client who hired the attorney) and the derivative client (the beneciary of the primary clients duciary duty). Since the primary client (as a duciary) is obligated to work in the interest of the derivative client (as a beneciary), the attorney is as well. Three consequences of this primary-derivative client model follow: (1) the lawyers obligation to avoid participation in his or her clients fraud is engaged by a more sensitive trigger than usual; (2) the lawyer must ensure that the duciaryprimary client volunteers complete and truthful information to the third partyderivative client; and (3) the lawyer has a duty to disobey instructions that would wrongfully harm the third partyderivative client (because a client is not permitted to use an attorney to harm the clients beneciary). Professor Hazard accounts for such problems however, stating that where the client is openly adverse to the beneciary, the joint client model is not viable. Examples of such clear cases arise: (1) where the lawyer is retained to represent the duciary in litigation con-

cerning the performance of the duciary duty; (2) where the lawyer is hired to represent the duciary in negotiating the terms and conditions of his or her oce (the duties and compensation of the duciary, for example); and (3) where a lawyer with no prior involvement is hired to negotiate for the termination or reformation of the duciarybeneciary relationship. However, Hazard argues that in the normal legal relationship between duciary and beneciary the duciary is fullling his or her duties and therefore the joint client model poses no such problems. However, if the properly functioning duciary relationship collapses and becomes antagonistic, the lawyer would only be able to represent the interests of his or her true (or primary) client. LAWYERS DUTY TO CLIENT WHO IS A TRUSTEE Traditionally, an attorney could only be liable in tort to his or her own client. However, inroads have reconstructed this maxim, and an attorney has certain responsibilities to third parties, particularly when the third party has a relationship with the attorneys client. In the situation where a lawyers client is also a duciary, the lawyer may have a duty to prevent the client from breaching his or her own duties to the non-client. While argument exists as to whether an attorney is required to prevent a clients breach of duciary duty, a lawyer owes a duty of care to a nonclient when and to the extent that: (a) the lawyers client is a trustee, guardian, executor, or duciary acting primarily to perform similar functions for the nonclient; (b) the lawyer knows that appropriate action by the lawyer is necessary with respect to a matter within the scope of the representation to prevent or rectify the breach of a duciary duty owed by the client to the nonclient, where (i) the breach is a crime or fraud or (ii) the lawyer has assisted or is assisting the breach;(c ) the nonclient is not reasonably able to protect its rights; and (d) such a duty would not signicantly impair the performance of the lawyers obligations to the client.

cumstances in which the client is a duciaryonly those in which the client exercises substantial power over another (as in the case of a guardian or trustee) and the clients beneciary is not reasonably able to protect its own rights. ( Here AWHO Members qualify on this as they suered under this for 3 decades) This duty requires attorneys in certain circumstances to clean up their own mess when they have assisted a clients breach of duciary duty, or prevent a mess from being made when the clients breach of duciary duty would be illegal or fraudulent. Such armative duties imply a fundamental duty not to aid in a clients breach of duciary duty at the oset. While imposing a duty of disclosure on the attorney could arguably create conict of interest problems and chill clients willingness to communicate frankly with their attorneys, those same problems do not arise by merely barring the attorney from advising or participating in a clients breach of duciary duty . Despite courts conclusions to the contrary, no solid foundation exists to create an exception for attorneys from liability for aiding and abetting a clients breach of duciary duty. Whether created explicitly or by strict interpretation of the elements of the tort, such an exception is inappropriate. PERPETRATING FRAUDS OR ILLEGAL ACTIVITY

such as malpractice, which do not command heightened levels of specicity at the pleading stage.Attorneys who aid or advise clients in perpetrating frauds or engaging in illegal activity may be held liable for their actions, and indeed the attorney client privilege is not available for communications regarding the fraud or crime. PRESENT CONTEXT In the present context, the attorney is the legal counsel of the registered AWHO Society and paid from contributions of the contributing members ( and NOT the members of the Board of Management) of the Society. He is fully aware that the BoM are usurpers and the rules constructed to administer AWHO are both illegitimate and also illegal to boot. He is aware that that he is NOT employed by a Trustee company providing services of trusteeship and his compensation did not come from the trustee company funds! Hence, the beneciary members of the Society are the actual clients of the legal counsel because the funds came from the Members of AWHO! The acts of the legal counsel are hence u nconscionablefrom this legal theory alone. The reasoning behind such a rule (that a legal counsel is criminally liable) is that society rightfully wishes to discourage attorneys from making such suggestions to clients. The same rationale applies to advising clients to breach duciary duties. Since such advice is to be discouraged, attorneys who proer it should be held liable to the extent they cause harm.

In protecting attorneys from lawsuits alleging aiding and abetting a breach of duciary duty through the imposition of a heightened pleading standard, requiring the plainti to lay out his or her claim in more rigorous detail in the complaint is especially inappropriate. Pleading with such particularity is usually reserved for situatiLegal counsel of AWHO should preons in which even the allegation of the pare to be charged with criminal liatortious activity could damage a potenbility on the basis of this legal theory tially innocent defendant (for example, alone. fraud or mistake). Allegations of aiding and abetting a breach of duciary duty Chandra Nath do not rise to the same level of damage in accusation. Any charge of tortious +91 11 414 01 679 activity inevitably causes some harm to the defendant, but this particular cause C 679 Sarita Vihar, ND As laid out in subsections (a) and of action does no more harm to a pro************************** (c), this duty does not attach in all cir- fessional reputation than other torts, 3

from: CPC cpcnath@gmail.com to : tant Generalays: we make rules, you md@awhosena.in, just obey) Draw up rules which are dymd@awhosena.in, with out legitimacy( rule makers haAWHO HQ awhosena@gmail.com , ve no legitimacy under statute) and AWHO awho@awhosena.org are llegal( violate constitution, stadate: Tue, Aug 20, 2013 at 12:02 tutes and case laws established in the PM courts of law). Makes a false or misleasubject: REAL ESTATE (REGU- ding representation concerning the serLATION DEVELOPMENT) BILL vices: Claim that the property is deveDear Mr Managing Director, loped under a State Apartment Act but The real estate regulation and fails to take appropriate actions to prodevelopment bill that seeks to vide protection of the Act to the a llotprotect home buyers from dis- tee members. Claims that it will be honest builders was tabled in built on No Prot No Lossbasis but the Rajya Sabha on Wednesday.: resist persistently to provide vericahttp://articles.economictimes.indiatimes.com/2013tion of the same. Resist transparency 08-15/news/414134701 e state in costing to conceal possible proteeregulation development bill ring and speculation in land prices. Viorajya sabha late laid out process to favour friends The real estate regulation and deve- of the Board of Management. Makes lopment bill that seeks to protect home misleading claims about cheaper cost buyers from dishonest builders was ta- ( Rs/square foot) by deliberately tabled in the Rajya Sabha on Wednesday king wildly inated super area in case of by minister of housing and urban po- AWHO but taking carpet area in case verty alleviation Girija Vyas. of other builders. Not providing manThe cabinet had approved the bill datory information as per chapter III on June 4. The bill has provisions like section 8 ( including the carpet area of a jail term of up to three years if devel- each unit) Violate the rule: if the person opers put up misleading advertisements aected by such incorrect, false stateabout projects. ment contained in the advertisement or Draft Real Estate (Regulation De- prospectus, intends to withdraw from velopment) Bill, 201( 271.54KB ) the proposed project, he shall be reMany practices of AWHO become turned his entire investment along with punishable under this bill! interest at such rate as may be prescriunfair practice means a practice bed ( and NOT paltry 5%) Violating which, for the purpose of promoting the the clause: a promoter shall not accept sale or development of any immovable any sum of money as an advance payproperty adopts any unfair method or ment or deposit, from a person without unfair or deceptive practice including rst entering into a written agreement any of the following practices. for sale along with specications and AWHO is engaged in many u nfair external development, works, the dates practiceslike: Represent that AWHO is and the manner by which payments toa registered Society but members are wards the cost of the plot, building or denied participation in governance in apartment are to be made by the alevery way possible virtually turning it lottees and the date on which the posinto a SSole Proprietor business( or at session of the plot, building or apartbest a partnership of the Board of Ma- ment is to be handed over and such nagement!) of a public servant( Adju- other particulars with such personlea-

ving every thing(including specication and quality) to the whims and fancies of AWHO management. Fails to fully meet Obligations of promoter towards allottees (for details refer Clause 12 of the bill) Failure to adhere to approved plans and project specications by the promoter.( Refer Clause 13 of the Bill) Failure to take all necessary steps to execute a registered conveyance deed in favour of the allottee thereby transferring the title in the immovable property along with the undivided proportionate title in the common areas simultaneously with the handing over of the possession of the immovable property and the other title documents pertaining thereto.( Refer clause 14 of the bill) Return of amount along with prescribed interest ( not just 5% as arbitrarily determined) along with penalty if not complied with time or specication of the property.(Refer Clause 15) Obligations of allottees limited to Clause 16 and not decided arbitrarily by AWHO in the rule book. AWHO being a Welfare Societyhould be proactive in protecting the rights of the member allottees rather than wait for the law to catch up with u of the real estate sharks nfair practices and builder maa! In view of the above, the Rule Book may be amended immediately proactively and also rectify the unfair practices practiced by AWHO in the current projects. Shouldnt a welfare society engaged in welfare activities for the veteran NOT do acts which are punishable and also should actively engage in acts that promote transparency as dened in the bill? With sincere regards. Chandra Nath +91 11 414 01 679 C 679 Sarita Vihar, ND **************************